Life Insurance Death Claim Settlement Ratio for FY 2013-14

IRDA (Insurance Regulatory And Development Authority) has come out with its annual report on insurance for FY 2013-14. This report has a lot of information on Life and General Insurance like the total premium collected, settlement ratio, solvency ratio, Insurance penetration in India among other things.

We have published the Death Claim Settlement ratio every year. This is one of the most important criteria for selecting right Life Insurance for you and your loved ones. Death Claim Settlement ratio tells you how what percentage of claims related to death were settled by the respective insurance company.

The ratio has improved slightly for LIC (Life Insurance Corporation) at 98.1% while it has deteriorated slightly for all Private Insurers combined at 88.3%.

The table below compares the death claim settlement ratio:

Life Insurance Death Claim Settlement Ratio for FY 2013-14

Few Points to note:

The average life insurance claim is for just Rs 1.35 lakhs. This is really sad as such low amount would not support most of the families after the demise of the main earner. To put things in perspective the minimum wage for unskilled labor in Delhi is Rs 8,632 per month (as of Nov 2014). So the average death claim is like 15 months salary of an unskilled laborer. As this is average a lot of claims would be of even lower amount! The good news is this amount has increased from last year which was Rs 1.17 lakhs.

The average amount for settled death claim is Rs 1.27 lakhs. This means that the higher value claims are not being settled as successfully as the lower value claims. This difference is higher for Private Insurers combined, as the average claimed amount is Rs 2.44 lakhs Vs Rs 2.16 lakh for the claims settled.

LIC average claim settlement amount is just Rs 1.14 lakhs as compared to Rs 2.16 lakhs for private insurers. This is also a factor of LIC covering all strata of the society.

LIC by far has the best death claim settlement record at 98.1% followed by ICICI Prudential (94.1%), HDFC Standard (94.0%), Max Life (93.9%), Star Union Dai-Ichi (92.9%), Bajaj Allianz (91.3%), SBI Life (91.1%), Kotak Mahindra (90.7%).

Last year only 6 companies had settlement rate of more than 90%. This year there are 11 companies with settlement rate of more than 90%.

The difference between average amount claimed and average amount settled is as high as 18% by some companies like Exide Life, India First, ICICI Prudential, Shriram Life among others. This can be due to either more fraudulent claims are coming with higher amount or companies rejecting higher claim amounts willfully! This might also mean Term Insurance which generally has higher death benefit have lower settlement ratio.

The data does not tell the settlement divided by type of insurance like ULIP or Term Plan. Also I am not sure if payment of only Fund value (and not complete death benefit) is considered as settlement in this report.

Life insurance companies have a very high rate of rejection in the ‘early claims’ – so if there is a claim made within 2 years of taking the policy, there is a far greater chance of it being rejected. So all the companies Edelweiss Tokio, India First, Star Union Dai-ichi, Canara HSBC, DHFL Pramerica, Aegon Religare which have started operation in last five/six years would obviously have low settlement ratio.

My Query: Generally higher claims may not be settled easily. Is it good/advisable If I take more than 1 policy for same total claim? Ex: Case1: Insurance company A – I have opted for Rs. 70 lac total death benefit.

Case 2: I have divided 70 lac as follows: Company A – 30 lac Company B – 20 lac Company C – 20 lac (I am aware that in case 2, total premium will be higher than case 1).

Whenever you take a new Life Insurance Policy, you need to provide the details of all existing policies to the company. Also most of claims rejected are due to certain reasons like non-declaration of correct facts at the time of taking policy etc.

If all the policies are taken at the same time with same conditions, ideally all of them would be settled or rejected at the time of claim. Also in case of higher amount the companies are more strict and careful about underwriting. This is ultimately favorable for policy holder at the time of claim.

But what I have written is ideal case! Multiple smaller policies Vs one large policy which is better can best be solved by some one more experienced in insurance or a insider. I’ll try to get some more information and keep you posted.

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